Estonia’s solution would fit everyone

We discussed the topics of the Tallinn Digital Summit with Estonian tax adviser in Brussels Marko Talur mere minutes after the international meeting. Talur makes no secret of the fact Estonia’s presidency has been an intense period for him: colossal background work, consultations, briefing of leaders. He found time for the interview during his lunch break when the time was already past seven o’clock.

Where do things stand in Europe today? Clearly there are those not interested in taxing digital giants?

There are countries that want to move forward very quickly. Others are skeptical. And there is a great number of countries for which the subject matter is unexpected and that haven’t considered it.

Where does Estonia stand?

We started it! (Laughs.) And the French went with it.

What is Estonia’s plan?

Our goal is a long-term solution that is not aimed at specific companies or countries. We have been saying since the first days of our presidency that there is backwardness in international tax policy, and that it concerns everyone to an equal degree.

We recommend the world to remain within the framework of existing tax rules; to perfect them, instead of creating new taxes.

Companies usually pay taxes where they have a physical presence. How would we complement international tax rules?

It is called a virtual permanent place of business. We believe it is the best solution for it would be the same for everyone – both big companies and small, irrespective of where they’re from. And what is paramount: irrespective also of their sector and area of activity.

It is our goal to change the concept so that a permanent place of business would also concern digital presence.

While it sounds good, how would you establish digital presence?

We are talking about client base. For example, the number of clients in a given country. There is also talk of turnover. Whether the service is localized is another aspect to consider.

Would Postimees buying an ad on Facebook aimed at people in Estonia constitute the latter’s digital presence in Estonia and obligation to pay taxes here?

We could reverse that example: it would be decisive if Facebook found a client, not the other way around. Facebook would have to do something specific to be present in Estonia. It has created a sufficient client base, proposed domestic bank transfers as a form of payment, created Estonian customer support. In summary, the company would have to do something that could be compared to it having a physical presence in the country.

What would happen if payments were handled exclusively through PayPal and the site would only be available in English while we would continue to consume its services on a massive scale? Would it not be present in that case?

Indeed, it is immensely difficult to draw the line. A single criterion will not be enough for a decision. Just as no one is taxed automatically just because they open an office in Estonia today. I would emphasize that Estonia is not talking about taxing individual companies, like Facebook or Google, but rather a global levelling of tax rules.

Why is Estonia’s proposal referred to as a long-term solution? And how long is long-term?

It is long-term considering the time it will take to carry into force. Countries are very conservative when it comes to tax changes as it directly affects their revenue. There is no hope of reaching an agreement tomorrow as all tax changes have beneficiaries and casualties. It is feared that the new concept could alter distribution of revenue in other fields.

Ideas for taxation of digital economy have been proposed by France, Italy, Germany, and Spain?

Their goal is to get a part of tax revenue they believe they’re entitled to. However, relevant global agreements would take too long from the point of view of Estonia’s proposal of virtual permanent place of business. They simply want to lay down a new tax. It would be an equalization fee to target turnover created in countries of destination.

There are a lot of questionable aspects as it remains unclear how it will be collected. Business models differ greatly. Let us take subscriptions-based Netflix or Facebook that lives on corporate ads. It would also be unclear who would have to pay the fee in case of those examples.

It is not impossible the end consumer of digital services would have to pay?

Yes; however, it would no longer be taxation of Facebook in that case. Thus, we come to the question of what it is we want: to collect tax revenue, or to put an end to a situation where a sector has a competitive edge in the form of lower taxes.

What will happen next? Will the solution offered by Estonia become the global standard?

We need to continue our work in the Brussels workgroups headed by Estonia. We want to give all proposals content and create a situation where all 28 member states would perceive their choices in the same way. We want to have a single and clear European preference by December. If we can show the OECD a strong common position, there is hope the rest of the world will follow.

We have achieved a situation where European leaders did not give a single press conference in Estonia that did not touch on the issue.

We are very grateful for this level of attention. We hope it has convinced several member states to join us, and that it will convince yet others. However, we will stick to our guns in that the problem is not with individual companies, and our measures cannot be aimed against isolated firms just to get more money out of them. That would be highly unfair.

We are not only talking about the advertising business; Estonia is proposing a solution to a structural problem: how to tax companies that have turnover, clients, and localized services in foreign countries in a situation where they don’t have physical presence there.